Yields on debt due in 2018 slid from near a two-month high. Bonds also gained on central bank plans to buy existing government debt from banks and securities companies at an auction tomorrow.

The nation’s benchmark share index declined to a three-week low. “The rupee has a bias to weaken because the stock-market sentiment is negative and exports are falling due to the global economic slump,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank in Mumbai. “It is also tracking movements in the non-deliverable forward rates.”

The rupee weakened 0.6% to 49.9750 per dollar at close in Mumbai, according to Bloomberg data. The currency fell as low as 50.0625 earlier, the lowest intraday level since 3 December. It dropped 1.7% Tuesday, the most since 12 November. The currency may decline as low as 50.20 in the coming days, according to Bhatt. The median estimate of 24 strategists and economists surveyed by Bloomberg is for the rupee to end the current quarter at 49.06.

Offshore contracts indicate traders are betting the rupee will trade at 50.25 in a month, compared with expectations for a rate of 50.12 on Tuesday. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.

The benchmark Sensex has lost 6.4% this week. Sales of Indian equities by foreign funds have exceeded purchases this year by $1.03 billion, adding to the record $13.3 billion in net sales in 2008.

India’s $1.2 trillion economy may expand 7.1% in the year to 31 March, the weakest pace in six years, according to government estimates.

Commerce minister Kamal Nath had said on 13 February that exports may increase 15% in the year ending 31 March, compared with an earlier target of 23%. Overseas shipments fell 22% in January from a year earlier, declining for the fourth month in a row, according to trade secretary G.K. Pillai. The slump may continue for several months, Pillai said in a 28 January interview.

“The question is whether we should cut rates, when we should cut rates and by how much we should cut rates,” Subbarao told Bloomberg on Wednesday after giving an address at an event in Tokyo. He said investments have declined as bank credit to companies and individuals shrank.

Subbarao kept interest rates unchanged in the central bank’s scheduled policy review on 27 January after reducing them to a record low on 2 January. The repurchase rate, which has been cut four times since October, is 5.5% and the reverse repurchase rate is 4%.